US yields drop after strong 10-year auction

US Treasury yields fell on Wednesday after the Treasury saw strong demand for a USD 39 billion sale of 10-year notes, indicating that concerns about investors stepping away from the market appear so far to be unfounded.

The 10-year auction priced with a high yield of 4.362%, around half a basis point below where it had traded before the sale. Demand was 2.61 times the amount of debt on offer, the highest since April.

“It was digested pretty easily and it shows that there is appetite for Treasuries. The ‘Sell America’ thinking has diminished considerably,” said Kim Rupert, managing director at Action Economics in San Francisco.

A worsening fiscal outlook has raised concerns about increased US debt supply in coming years. Uncertainty over the impact of tariffs and other Trump administration policies is also seen as potentially crimping foreign demand for US assets.

So far, however, there has been no clear signs that foreign investors are turning away from Treasuries. Longer-dated debt is also being supported by comments by Treasury Secretary Scott Bessent that there are no plans to increase longer-dated auction sizes at current interest rates.

“The market has a track record of digesting supply well and the Treasury Secretary continues to communicate that coupon issuance will be well managed,” said Michael Lorizio, head of US rates trading at Manulife Investment Management in Boston.

A USD 58 billion three-year note auction on Tuesday saw slightly soft interest. The government will sell USD 22 billion in 30-year bonds on Thursday.

The yield on benchmark US 10-year notes was last down 7.7 basis points on the day at 4.34%.

Interest rate-sensitive two-year note yields fell 4.7 basis points to 3.862%.

The yield curve between two-year and 10-year notes flattened by around three basis points to 48 basis points.

US President Donald Trump issued final tariff notices to seven minor trading partners on Wednesday as his administration inched closer to a deal with its biggest trading partner, the European Union.

The prospect of higher price pressures from tariffs is seen keeping the Federal Reserve on hold while the labor market remains relatively solid.

“As long as we’re relatively subdued in terms of the unemployment rate, I think that the Fed feels emboldened to wait to see what the inflation impact is before they make any changes,” said Lorizio. “That just puts on hold any sort of positioning for rate cuts.”

Traders pared bets on how many times the Fed will cut rates this year after jobs data on Thursday showed employers added more jobs than expected in June.

Minutes from the Fed’s June 17-18 meeting released on Wednesday showed that only “a couple” of officials felt interest rates could fall as soon as this month, with most policymakers remaining worried to some degree about inflationary pressures from tariffs.

(Reporting by Karen Brettell, Editing by Franklin Paul and Nick Zieminski)